Based on your analysis of the Lion Tire transactions below, draft the journal entries that should have been made in an Excel spreadsheet. Then, write a memo to Andrew explaining the accounting principles that should have been followed for Panaches investment in Lion Tire. In your memo:

Illustrate how the investment will be reported in the companys balance sheet and income statement.

Explain how and why the accounting for this investment is different from the accounting for Panaches other investment securities.

Devise three ways, based on past practices, that Panache can improve its future accounting principles for the Lion Tire transactions. Use examples from the Excel spreadsheet when necessary.

1/2/2007 Purchase advice for the purchase of 30,000 shares of Lion Tire at $12 per share

The following balance sheet was also in the file, with a notation that the carrying values and fair values of Lions assets were the same.

Lion Tire, Inc. Balance Sheet As of December 31, 2006 (in thousands)
Assets		Liabilities and Stockholders Equity
Current Assets	$ 60,000	Liabilities	$300,000
Property, Plant & Equipment, net	600,000
Other Assets	240,000	Common Stock, no par	180,000
		Retained Earnings	420,000
		Total Stockholders Equity	600,000
Total Assets	$900,000	Total Liabilities and Stockholders Equity	$900,000

4/1/2007 Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire

@ $.50 per share"

10/1/2007 Check stub and copy of deposit ticket with the notation "Dividend received from Lion Tire

@ $.50 per share"

12/31/2007 Section of

Wall Street Journal for December 31, 2007, showing Lion Tire stock closed at a price of $15 per share

12/31/2007 Condensed income statement and statement of retained earnings for Lion Tire as of

December 31, 2007.

Lion Tire, Inc. Lion Tire, Inc.

Income Statement Statement of Retained Earnings

For the Year Ended December 31, 2007 For the Year Ended December 31, 2007

Revenues	$600,000	Beginning Retained Earnings	$ 420,000
Expenses	408,000	Add Net Income	192,000
Net Income	$192,000		612,000
		Less: Cash Dividends	100,000
		Ending Retained Earnings	$512,000

Panaches general ledger accounts related to Lion Tire are shown below:

	Available-for-Sale Securities
Date	Description	Debit	Credit	Balance
1/2/07	Purchase 30,000 shares of Lion Tire no-par common stock	$360,000		$360,000

	Dividend Income
Date	Description	Debit	Credit	Balance
4/1/07	Cash dividend received from Lion Tire	$15,000		$15,000
10/1/07	Cash dividend received from Lion Tire	15,000		$30,000

Panaches general ledger accounts related to Lion Tire are shown below: